|The National University of Singapore’s tuition fees for Academic Year 2008/09 are S$6,600 p.a. on average for non-medical courses and S$18,230 p.a. for medical courses. A projected 5% p.a. increment in tuition fee will mean that in 19 years time, the fee for a non-medical course is going to cost $16,678 p.a.
Overseas tertiary education will cost even more. For example, the U.S. College Board reported that the average 2007/08 private college tuition fee was US$23,712 (up 6.3% from the past year figure). And note that all the above-mentioned figures have yet to take into account the living expenses which would also increase over the years as the cost of living is set to rise.
There are numerous assistance schemes available to help fund for tertiary education and one of the most widely subscribed is the CPF Education Scheme. Under the scheme, CPF members can pay for their own or their children’s full-time local tertiary education at approved institutions by utilizing up to 40% of the Ordinary Account balance, including amounts withdrawn for education and investments or the remaining balance in the OA after setting aside amounts reserved for housing or any other CPF schemes. The CPF Education Scheme is a loan scheme, and if CPF members' monies are used for their children's education, the children would have to repay the CPF monies in cash after their graduation. There are also other schemes such as study loans from commercial banks, bursaries and scholarships from both public and private sectors.
However, your CPF or other assistance schemes may not be sufficient to provide for all of your children's education needs, especially when your CPF is also used to fund your home and retirement.
Here are some common ways in which you can accumulate funds for your children's tertiary education:
A fixed amount of money can be invested into unit trust on a monthly basis to leverage on the Dollar Cost Averaging effect. By investing fixed amounts at regular intervals, you are buying more units when the price is low & fewer units when the price is high, hence allowing you to reduce your average cost in a volatile market. There are as many as 300 unit trusts for you to choose from, depending on your investment horizon, goal and risk appetite.
When selecting which unit trusts to invest in, do take your time to understand key areas such as the investment objectives, the minimum recommended investment time horizon, the risk levels, the fees and charges, etc. Do not select funds simply based on past returns or promises of attractive potential returns, offers of promotional gifts or rumors in the market.
You can also subscribe to a regular-premium investment-linked plan which offers life protection with investment opportunities. Typically, such a plan will offer you some flexibility to vary the allocation of your premium towards protection or investment at different points in your life to match your life needs – be it for your children’s education or for your own retirement. Do note however that most plans may not grant you an increase in life insurance protection if you are not in good health.
Alternatively, you may want to consider taking up a single premium investment linked plan and periodically top up your investments. In comparison with taking up a regular premium investment plan, this option would usually come with much lower life insurance protection and hardly any flexibility to vary the allocation of your premium towards protection and investment.
Remember that there is no free lunch. So, while an investment-linked policy comes with both insurance and investment elements, note that these come with charges. Take note of key factors such as the percentage of premium allocated to investments, the cost of insurance and other fees and charges, any flexibility for you to switch your investments from one fund to another, the consequences if you do not pay the regular premiums and/or decide to terminate the policy, etc.
Endowment Policy or Participating Whole Life Plans
A long term regular-premium endowment or whole life plan is another common way to help parents save in a systematic and disciplined way for their children’s education. Such plans typically offer insurance protection for the life insured (which may be the child or the parent). The market also offers benefits such as payer’s benefits so that the premiums are waived in the event of death, critical illness or permanent disability of the payer (typically the parents).
Do take note that endowment and whole life policies are long term instruments. If you decide to terminate the policy at the early stages, the policy cash value could be substantially less than the total premiums paid. Do also take note that bonuses are not guaranteed. When selecting an endowment policy, it is advisable to take note of the guaranteed and non-guaranteed policy values which would be set out in a benefit illustration.
As an alternative to investing in unit trusts, you may wish to consider investing in a portfolio of shares and bonds if you are familiar with such investments.
Shares and Bonds
If you are familiar with investing and know how to monitor and manage your investments, placing your money in an appropriate portfolio of instruments such as shares and bonds can also be an avenue to help you grow your funds. Common strategies such as dollar cost averaging and diversification can help reduce risks in your portfolio.
Before you invest in any asset, do read the prospectus or other offer documents carefully and ensure that you understand the potential benefits and risks. It is also useful to keep abreast with market and economic developments, as well as keep in touch with research reports and analyst reports. This way, you can have a better understanding of developments that could affect your investments. It is also very important to monitor your investments and take steps to adjust your portfolio where necessary.
Lump sum or Regular Saving Account
If your finances allow, you can also set aside a lump sum of money into a savings (e.g. fixed deposit) account as soon as your child is born. An amount of $26,400 now, when compounded over 19 years at 5% p.a., will yield $66,712 which is the projected amount required for a local 4-year non-medical course tuition fee. Alternatively, you may consider setting aside a fixed sum of money every month to accumulate the tuition fees. For example, if you set aside $187.50 every month, you would have accumulated $50,000 in 20 years’ time (assuming at 1% p.a.). The earlier you start saving, the more you can benefit from the effects of compounding. If you start saving 10 years later, you will need to save $395 per month to accumulate the same $50,000.
Posted by Financial Planning Association of Singapore on 9/10/2008